Nov
4
On the Seattle tech startup mailing list today there was an interesting thread started by someone putting together a budget for bootstrapping their startup. The total budget was $26k, much of which went to legal and administrative fees.
The main reason founders incorporate is to either protect themselves legally, or to make it clear, legally, how much equity in the business each founder owns.
Most consumer web startups don’t run the risk of getting sued in the first few months of operation. I’ve been sued over trademark infringement, but it was after several years of operation and only when our company was very high profile (we appeared in the NY Times among others). So incorporating to protect yourself legally shouldn’t be your first thought when starting out. Consider that you’re not going to be worth enough to make your startup worth suing.
If you and your co-founders have a dispute over who is going to own which share of the company before you start, then you should probably find other co-founders to work with. The Google founders only incorporated after they raised their first angel round of $100k. They needed to cash a check made out to Google Inc. so they had to incorporate. Just make sure you agree verbally on how much of the business each founder is going to own before you start.
A few weeks after your new website has launched and started to grow beyond your control, then start thinking about putting a formal legal structure in place and protecting yourself behind a corporate veil. Now that you’re not racing to get your product to market, you have a few spare hours to take care of the boring administrative issues.
Note: I’m not a lawyer and this is not legal advice.
